KUALA LUMPUR, Aug 20 — The Affin Holdings Bhd-HwangDBS (M) Bhd potential deal has been described as a good fit in terms of businesses brought to the table, however, Affin faces the risk of overpriced acquisition and potential dilution if fresh equity is needed, says RHB Research.

It said Affin’s lack of scale posed some questions on the potential cost synergies that the merged entity may be able to achieve.

“We see the potential deal including overpaying for Hwang-DBS and the potential dilution to earning per share and return on equity, if fresh equity is needed to fund the acquisition,” it said, adding that it maintained a neutral call.

Meanwhile, Kenanga Research said the group may need a gestation period should the acquisition of assets of HwangDBS’ unit materialised.

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The research house also said the group’s growth would be mainly driven by net writebacks for the year.

However, the underlying trend of writebacks could be vulnerable if and when interest rates start rising or the economic direction turns volatile from extreme external factors.

“Thus far, we have factored in a total net writeback of RM44.9 million for the 2013 financial year but we imputed “zero” credit cost (but no writebacks) in our earnings model for financial year 2014,” Kenanga said.

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As for the prospect of loans growth, it imputed an average loan growth of 10 per cent for the next two years as Affin was optimistic of seeing loans growth momentum picking up in the second half of the year.

“Nonetheless, we reckon that the risk of missing this loan growth target is relatively high should the government decide to continue with its subsidy rationalisation plan in the second half,” it added.

Kenanga Research downgraded Affin to market perform. – Bernama